While Apple aggressively expands its retail presence globally, Chinese store growth severely wanes.
Apple Storefronts Tracker shows in 2015 and 2016 that its retail presence in China added 30 new stores. Since early 2017, the company opened five new locations in the country, as it appears - store growth has hit a massive brick wall.
Apple noted in July's 3Q18 earnings call that it recently opened its 50th retail store in greater China. According to the newly published report from The Information, this achievement would have come sooner if not for changes in the market.
Apple ditched China in 2018 and pushed for new countries, including South Korea, Austria, and Thailand. The shift in strategy could be due to Chinese customers gravitating to domestic brands like Oppo, Vivo, or Xiaomi.
Ben Cavender, a senior analyst at Shanghai-based consultancy China Market Research Group, said the iPhone attracted Chinese shoppers to Apple stores a decade ago, but not so much anymore, as they now have local smartphone brands that are more powerful and or cheaper.
Cavender added: "At that time, Apple was offering a product that was so much better and so different that it made sense for people to show up at the store to buy something. In 2018, it’s not clear what Apple is selling that’s dramatically different or better than anything else on the market."
The report also explores Apple’s struggle with red tape, fraud, and other factors.
On government bureaucracy:
"Apple had to navigate a maze of government bureaucracy to obtain everything from business and tax licenses to construction, fire and customs permits for imported building materials, former employees say. The regulatory framework in China is far more complicated than in the U.S., with many more layers of government, these former employee say, and it’s far more opaque. Employees frequently scrambled to chase down permits and local approvals to keep store openings on track, " said The Information.
"Apple, too, had to contend with scalpers, known as "yellow cows" in colloquial Chinese. These scalpers swarmed its stores and elbowed out other customers during product launches and in-store promotions.
Apple executives worried they were losing control of the customer experience in their stores, and along with it opportunities to interact with real consumers. The scalpers showed little interest in the accessories and add-on services Apple likes to offer customers," said The Information.
Other factors, according to The Information, include government officials asking for free products as a form of bribery, tax issues with Beijing and Shanghai, and a massive black market for iPhones.
Earlier this month, new details emerged about Apple’s struggle with iPhone repair fraud in China, that has cost the company billions of dollars.
The Information notes that return rates have been extremely high, fueled, in part, by the black/grey markets of iPhone resellers.
As a result of these difficulties, Apple is said to have "abruptly changed" its retail expansion plans in mainland China, resulting in a slowdown of retail store openings.
Last quarter, Apple achieved $9.5 billion from the Greater China region, which accounted for 17.9% of the company's revenue in the quarter, making it the company's third largest market, behind the United States and Europe.
On Thursday, Apple will release its 4Q18 earnings report, where more insight into Apple's dealings in China will be uncovered, along with the effects of the trade war.